Economic Governance in the Enlarged Union

Economic Governance in the Enlarged Union

An EPC dialogue was held on “Economic Governance in the Enlarged Union”. The panel included Klaus Haensch, MEP, member of the Convention Presidium and chairman of the Convention working group on economic governance, Niall FitzGerald KBE, Chairman of Unilever plc and Erik Carlslund, Deputy Secretary General of the ETUC. A question and answer session followed. This is not an official record of the proceedings and specific remarks are not necessarily attributable.

Economic Governance

Klaus Haensch, MEP said that, legally speaking, the constitution would actually be a Treaty, but with the “substance” of a constitution. That did not mean the establishment of an entirely new Treaty, but the division of the existing Treaties into a constitutional part and an operational part. The consequence of this decision for his working group was they would be obliged, for the rest of their deliberations, to focus on proposals of constitutional relevance – and many of the issues on some working group members’ wish lists, did not fit that bill.

Work should finish this week before moving to final conclusions, and there was already agreement that the balance of competences between the EU and the Member States Throughout in the field of economic governance should be maintained, with monetary policy centralised at the European Central Bank (ECB), and economic policies with Member States.

There was agreement too that the ECB’s independence should be maintained – a point which may seem obvious to many, said Mr Haensch, but this had not been the case for all of the working group’s members. There were differences about the fact that price stability was at the heart of the working group mandate – a small minority believed that issues like employment should be given equal weight. There was a clear will that the constitution must mention coordination of economic and financial, employment, social and other key policies.

There are four key fields of coordination:

1. Broad economic policy guidelines:the working group believed guidelines should be established on the basis of input from the Commission, MPs and MEPs as to what could be considered the “common interest.”

2. Stability and Growth Pact:The group felt that the Convention should not interfere in this policy debate, as whether there is a balanced budget in 2004 or 2006 is not of constitutional relevance. But the Commission’s “early warning” role in the Pact should increase and should be enshrined in the Treaty. Countries subject to such a warning should lose their right to vote.

3. Open economic policy coordination:The Lisbon strategy should serve as the example here and flexibility should be safeguarded by the Treaty. Open coordination must not interfere with existing decision-making processes.

4. Tax harmonisation:In this area the group was not in agreement. One third said unanimity for tax must be maintained; one third said it must moved to qualified majority voting; the other third wanted a formula under which any taxes deemed “especially relevant” at EU level be harmonised across the EU, but by QMV.

The working group believed that informal meetings of the ECB and eurozone countries must be maintained, and non-eurozone states should not take part. There should not be a “euro-EcoFin”.

Mr Haensch said he expected the working group to state clearly that the EU speaks with a single voice on the international stage in financial matters. The EU’s economic and social objectives should be part of the constitution but the relationship with the Lisbon strategy was in dispute in the group and that debate would have to be revisited. The group would present its final conclusions in plenary in early November, for consideration in the drafting of the proposed constitution in January.

Meeting the Needs of Business

Niall FitzGerald, chairman of Unilever plc, spoke of the EPC’s “increasingly-valuable role” in bringing together decision-makers, business leaders and representatives of civil society to help shape Europe’s future. He said Europe’s place on the world stage was inextricably linked to the EU’s ability to manage its own affairs. EU governance and competitiveness were interlinked: “Delivering the competitiveness agenda will count for little if Europe – and above all the eurozone – fails to manage its own institutional and economic affairs.”

The fundamental issue was whether the EU had the shared leadership, vision and commitment to create and sustain effective and consistent decision-making. This was a pre-requisite for the EU’s future as a trading bloc of 500 million consumers alongside meeting its global commitments and the Lisbon agenda targets to become the most competitive knowledge-based economy by 2010. The challenges of such enormous change were great, but so was Europe’s ability to meet those challenges but Mr FitzGerald said he was optimistic about the prospects.

He called for sound economic policies with monetary stability and fiscal discipline at their heart. There was a clear and growing need for greater coordination of national economic policies in the EU to enable businesses to keep growing and planning with certainty. To function effectively in the single market, businesses needed clear, consistent and transparent economic governance that aligned fiscal and monetary policy. The implications for the EU’s economic future, its Member States and individual companies were considerable.

The economic impact of enlargement still hung in the balance and political decisions may have to be taken to enable enlargement to go ahead in parallel with the continuing debate about future funding.

Europe was at a major crossroads – one that offered a potentially unrepeatable opportunity for fundamental re-examination of Europe’s institutions and its place in the world.

There were five factors that were critical for the ability of Europe’s system of governance to meet the needs of business.

1. Delivering a vision for Europe:whatever governance model is chosen, it has to provide a clear vision coupled with stability and “executional commitment” to deliver that vision. Institutional reforms were needed so that Europe and its businesses could move forward with certainty. A more positive environment was needed in which business could compete and the overall competitiveness of Europe, as set out in the Lisbon agenda, must remain central to these values and objectives.

But this required effective leadership and decision-making. The European Council had to set strategy and monitor progress – something undeliverable under the current six-month rotation of the EU presidency. QMV had to be extended to areas relevant to cross-border trade and to enable the necessary political decisions to be taken. Unanimity should remain for taxation and social policy, but failure to make the required changes would put the Lisbon strategy at risk and paralyse progress in many areas – telecoms, transport, open skies, energy liberalisation, and financial services, all critically important to Europe’s competitive well-being.

2. A clear division of competences:greater clarity is needed here, reconciling the difference between the application of “subsidiarity” and the need for European harmonisation. All proposals should be subject to an early subsidiarity test – but it must be independent and based on a clear definition.

3. Transparency and accountability:the governance system must address the need for transparency, accountability and credibility with the public. People must feel involved. Consultation with stakeholders was cruc ial with the need for a more detailed Code of Conduct. The engagement of civil society had to be formalised. – although Mr FitzGerald warned against setting up mechanisms which merely added new structures and lacked accountability.

4. Improved regulation and legislation:a higher quality of legislation required rigorous and independent socio-economic impact assessments. Any new Treaty must strengthen the monitoring of EU law by the Commission and the European Court of Justice to avoid single market trade distortions.

5. Speaking with one voice on the world stage:the governance system should enhance this by improving Europe’s ability to influence world events. The EU was already demonstrating global leadership in key areas, not least as a counterweight to the might of the US, and it would be a “crippling blow” if this ability to act as a constructively critical force were to be diluted by fragmented governance and poor decision-making as enlargement takes place.

This agenda is achievable, said Mr FitzGerald. It was high time business made its voice heard on what it wants from Europe – essentially industry needed a growth-orientated and predictable environment. The ECB should keep its exclusive competence for a central monetary policy with the key goal of price stability. Coherent, but not harmonised, fiscal policies in the eurozone should complement monetary policy. There should be more effective coordination between economic, employment and fiscal policies, but there is no need to build the Stability and Growth Pact into the Treaty.

It was critical that the eurozone states live up to their promises and stick to the rules – delivery was the answer. Europe’s business community is only now appreciating the complexity and interdependence of the EU processes under way, and the European project was at a critical stage in its evolution. The future could be exhilarating – or catastrophic “if we don’t get it right.” But the right governance model will be the bedrock on which European business can compete across the world.

Principle of ‘One Voice’ Important

Erik Carlslund, Deputy Secretary General of the ETUC, said it was clear that the Convention was not discussing policies, but concentrating on the aims, missions, tasks and competences required to achieve governance. The Lisbon strategy was crucial in the whole debate about economic governance, and it should be included in the constitutional part of the Treaty, setting out the EU’s missions, as well as in the policy part.

The role of national parliaments and the social partners was an important element in Treaty reform. Competences based on community method initiatives and policies had to be combined with competences established at national level. The “missions” section of the Treaty should declare the requirement for a social market economy with a goal of higher employment.

It was not a question of changing competences, but of clarifying procedures. On the broad economic guidelines, the aim was to ensure “synergy” and a coherent set of policies. The ETUC was recommending an advisory group be set up to be aligned with the central bank system: to ensure that the global role was fulfilled, the principle of “one voice” had to be established.

Discussion

EPC Senior Policy Advisor John Wyles then opened the debate to the floor, observing that there was clearly much agreement in the economic governance working group, but little said about governance of the euro.

Mr Haensch said the Convention had no mandate to analyse actual policies. On the euro zone in particular it was important not to stray into that area. He noted that while other Convention working groups met in public, the economic governance group met behind closed doors – something which was key because of the sensitivity of the financial markets to what was on the table: “If we disc ussed these matters in the open, there would be certain consequences for the financial markets, and it is not our task to do that.”

Mr FitzGerald said the euro was still only a little more than two years old. The fundamental issue was the Stability and Growth Pact, which he criticised as unenforceable because it failed to recognise that economies move in cycles. What was appropriate for 3% growth during a boom was not appropriate for 1% growth in depressed conditions.

Mr Carlslund said the framework had to be applicable to Europe’s economic situation, and the Lisbon strategy – ensuring jobs, growth and sustainability – should be promoted in parallel.

Asked if the Convention was tackling the problem of a lack of coordination on economic governance issues in the various EU Councils, Mr Haensch said there was now a proposal for an over-arching Council of ministers to legislate. However, the Convention was not discussing issues specifically related to economic governance because the organisation and structure of the Council meeting system concerned a range of matters. But the question was in people’s minds and would be addressed in the Presidium.

Mr Haensch explained that no decision had yet been taken on whether the role of the ECB should be enshrined in the constitution, but there was agreement that its tasks and mandate should remain unchanged and should not be affected by any new Treaty provisions.

Decision-making procedures had to facilitate progress in the area of fiscal policy, but the aim should not be to establish unified taxes and seek to tackle personal and property taxation. The need was merely for sufficient approximation of rates, particularly on company taxation, to avoid harmful tax competition.

Asked whether the Treaty would define the competences of the various Councils, Mr Haensch said that was a matter for governments. His own vision was to divide the current General Affairs Council into a GAC section and a legislative council, the legislative section finalising law making from all Council areas.  

The problem of political will, particularly in reaching targets for broad budget balance, was raised and Mr Haensch replied: “If there is no political will, you cannot create institutions.”

Conclusion

EPC Director Stanley Crossick summed up by observing that the EPC’s own focus on the Convention was very strongly on the institutional and Treaty changes needed. The draft constitution had to address the underlying tasks of the Union. It was essential that stakeholders were involved in the economic governance issue, and it was not enough for interest groups to “pontificate from on high”.

The key message from the dialogue was that economic governance played a vital part not just in creating the right conditions for a flourishing, competitive EU business community, but for the establishment of the European Union as an effective global player and counterweight to the economic might of the United States.

He urged everyone to “get stuck in”, identifying issues and lobbying hard, from businesses to NGOs.

For more analyses see The European Policy Centre’s

website